International Monetary Economics

International Monetary Economics

International Monetary Economics

Synopsis

It focuses clearly and simply on the underlying economics of exchange rate dtermination and balance of payments. In Part I the author presents basic concepts within historical perspectives of the US and Global Economy. Part II intriduces a basic analytical model - usable with fixed and floating exchange rates, in which capital mobility is complete, real exchange rates are variable, and investment spending is endogenous. Variants of the model are used for short and long-run comparative static analysis. In addition, there is a relatively long chapter devoted to dynamic analysis with rational expectations. Part III contains three chapters on policy, including a full chapter on the European Moneatry System.

Excerpt

There are several ways in which this book differs substantially from almost all existing texts in international economics. First, the present work is designed specifically for the study of international monetary economics, an area alternatively known as open-economy macroeconomics. The main concerns, accordingly, are exchange rate behavior, balance of payments considerations, macroeconomic policies, and international monetary arrangements.

Second, the book is relatively short--brief enough to be covered in a realistic one-semester course. This implies that some traditional topics must be treated quickly with others omitted entirely. I believe, however, that this is not a limitation, but instead a positive virtue. The reason is that a crucial ingredient of effective instruction is the careful determination of those topics that are of fundamental and/or essential importance. In my view, it is not very helpful to merely hand a student a comprehensive encyclopedia.

Most importantly, however, the book's analytical material is presented in terms of a single unified framework. Most textbooks on the subject present a bewildering sequence of special-purpose models, each one involving its own combination of simplifying restrictions or "assumptions" such as limited capital mobility, constant real exchange rates, fixed price levels, and so on. Indeed, considerable attention is, in many cases, devoted to models of the most extreme Keynesian multiplier type, in which investment spending is treated as exogenous and interest rates are ignored completely. In the present work, by contrast, the emphasis is on a single setup--usable with fixed or floating exchange rates--in which capital mobility is complete, real exchange rates are variable, and investment spending is endogenous. Variants are utilized for short-run and long-run comparative static analysis, i.e., assuming fixed and fully-adjusted commodity prices. Indeed, steady-state as well as stationary-state applications of the latter are explored, thereby lending additional realism to the analysis in a manner that is not present in existing texts. The simplifying assumption that makes possible a unified and compact graphical treatment of all these cases, with both fixed and floating exchange rates, is that the perspective taken is (in most places) that of a small open economy.

In addition to these comparative static exercises, the book devotes one sizable chapter to proper dynamic analysis with rational expectations, something rarely found in textbook presentations. There the technical demands on the reader are somewhat greater. But except in this one chapter--which can be skipped without major consequences in subsequent portions--the expositional technique is predominantly graphical rather than algebraic.

Some additional features of the book that are moderately unusual include . . .